IPSAS 17 is based on IAS 16 Property, Plant and Equipment (Revised 2003).
IPSAS 17 prescribes the accounting treatment for property, plant and equipment. Generally, property, plant and equipment is initially measured at its cost except when the property, plant or equipment is derived from a non-exchange transaction, than it is initially measured at fair value. Subsequently property, plant and equipment is measured either using a cost or revaluation model, and depreciated so that its depreciable amount is allocated on a systematic basis over its useful life. Impairment testing should be performed at least once a year at the annual reporting date and should be executed according to IPSAS 21 or IPSAS 26.
IPSAS 17 was reissued in December 2006 and applies to annual periods beginning on or after 1 January 2008.
History of IPSAS 17
Annual periods beginning on or after 1 January 2008.
Refer to IFAC website here
Summary of IPSAS 17 Property, Plant and Equipment
IPSAS 17 prescribes the accounting treatment for property, plant and equipment and has to objective to provide users of the financial statements with information about such investments and the changes thereof. The standard also covers the measurement and derecognition of property, plant and equipment [IPSAS 17.1], for impairment testing IPSAS 21 and IPSAS 26 are applicable.
This standard applies to entities that prepare and present financial statements under the accrual basis of accounting [IPSAS 17.1]. IPSAS 17 applies to all public sector entities other than GBEs [IPSAS 17.3].
Following items are excluded from the scope of the standard [IPSAS 17.2 and 6]:
(a) Items for which a different accounting treatment has been elected in accordance with IPSASs (e.g. IPSAS 13 Leases)
(b) Heritage assets – except for the required disclosures with regard to these assets
(c) Biological assets related to agricultural activity (IPSAS 27 Agriculture)
(d) Mineral rights and mineral reserves such as oil, natural gas, and similar non-regenerative resources
Key definitions [IPSAS 17.13]
Property plant and equipment: tangible items:
• held for (i) use in the production or supply of goods and services, (ii) rental to others or (iii) administrative purposes
• expected to be used more than one year
Depreciable amount: the cost of an asset, or other amount substituted for cost, less its residual value.
Depreciation: Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life
Recoverable amount: for a cash-generating asset, the higher of:
• the fair value lest costs to sell
• the value in use
Recoverable service amount: for a non-cash-generating asset, the higher of:
• the fair value lest costs to sell
• the value in use
Impairment loss: the excess of the carrying amount over the recoverable (service) amount
Property, Plant and Equipment in the context of the Public Sector
Property, plant and equipment are assets held for use in the production or supply of goods and services rental to others or administrative purposes and are expected to be used more than one year. In the public sector context these assets can be cash-generating or non-cash generating, heritage assets (monuments, artworks, historical buildings, etc), infrastructure (roads, water and power supply networks, sewerage, etc).
Property, plant and equipment should be recognized as an asset if [IPSAS 17.14]:
• it is probable that the future economic benefits or service potential that are associated with the item will flow to the entity
• the cost or the fair value of the item can be reliably measured.
PPE acquired for safety or environmental reasons are recognised as assets because they may be necessary for an entity to obtain future economic benefits or service potential from other assets [IPSAS 17.22].
Property, plant and equipment is initially measured:
• at cost, including any transaction costs [IPSAS 17.26]
• at fair value, if the asset is acquired through on non-exchange transaction [IPSAS 17.27]
Cost is the amount of cash paid or the fair value of other assets given (exchange of assets) to acquire an asset. Discounting may be needed if payment is deferred [IPSAS 17.37]
If the investment is measured at cost, the cost should included any directly attributable costs [IPSAS 17.30] but should exclude costs of opening a new facility, costs related to the introduction of a new facility, cost of conducting a business in a new location or with a new class of customers, administration and general overhead costs [IPSAS 17.34].
Elements of cost [IPSAS 17.30]
• Purchase price
o Plus import duties and non-refundable taxes
o Less trade discounts and rebates
• Directly attributable costs bringing asset to location and condition so that capable of operating in intended manner
• Initial estimate of costs of dismantling and removing item and restoring site, where entity incurs obligation:
o either when the item is acquired or
o as a consequence of having used the item during a particular period for purposes other than to produce inventories
• Self-constructed assets: same principle as for an acquired asset [IPSAS 17.36]
The obligations for dismantling, removing and restoring are recognized as a provision (measured in accordance with IPSAS 19 Provisions, Contingent Liabilities and Contingent Assets).
IPSAS 17 permits the application of two models [IPSAS 17.42]:
• the fair value model (“the revaluation model”)
• the cost model.
One accounting policy shall be elected by the entity for each significant class of property, plant and equipment and apply this policy to the whole entire class [IPSAS 17.42].
Fair value model
If the fair value model is applied, the item of PPE is carried at a revalued amount, being its fair value at the date of revaluation less subsequent depreciation and impairment losses. Revaluations should be performed on a regular basis to ensure that the carrying amount is not materially different from the fair value at the reporting date [IPSAS 17.44].
If the entity elects to revalue an item of certain class of PPE, the entire class of PPE should be revalued [IPSAS 17.51].
The accounting treatment of revaluation gains or losses (“increase or decrease”) is as follows:
• Gains (“increase”): the increase shall added to revaluation surplus (as a component of net assets/equity) except when the increase concerns a reversal of an earlier decrease recognized in surplus or deficit [IPSAS 17.54]
• Losses (“decrease”): the decrease shall be recognized in surplus or deficit (i.e. Statement of Financial Performance”) except when the decrease concerns a reversal of an earlier increase recognized in revaluation surplus [IPSAS 17.55]
• Offsetting: revaluation increases and decreases should be offset within that class of PPE, but is not allowed between different classes of PPE [IPSAS 17.56]
• Derecognition: Upon derecognition the revaluation surplus is directly added to accumulated surplus or deficit (net assets/equity) and not through surplus/deficit [IPSAS 17.57].
If the cost model is elected by the entity, the item of property, plant and equipment is subsequently carried at cost less accumulated depreciation and less accumulated impairment losses [IPSAS 17.43]
Component approach: Each part of an item of PPE with a cost that is significant in relation to the total cost of the item shall be depreciated separately [IPSAS 17.59].
Following principles apply for the component approach:
1) Allocate amounts to significant parts/components and depreciate separately [IPSAS 17.60]
o Group together significant parts with same useful lives and depreciation methods
2) The remainder of the item is also depreciated separately [IPSAS 17.62]
o The remainder consists of parts that are individually not significant
o Where varying expectations for these parts, approximate to depreciate in manner that faithfully represents consumption pattern and / or useful lives
3) Regular major inspections performed may be considered as a component of an item of PPE [IPSAS 17.25]
o Estimated costs of inspection are depreciated on period separating 2 inspections
The residual value and the useful life of an item of PPE should be reviewed at least at each annual reporting date and when expectations differ from earlier estimates, any change should be treated as an change in accounting estimate in accordance with IPSAS 3, i.e. prospectively [IPSAS 17.67].
Depreciation starts when item of PPE is available for use [IPSAS 17.71] and is continued even when the fair value of the item is higher than the carrying amount [IPSAS 17.68].
Depreciation continues until item of PPE is derecognised [IPSAS 17.71].
• Even if during that period the item is idle [IPSAS 17.71].
Depreciation method shall reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity [IPSAS 17.76].
• Straight line method is the most used method
o Other methods : diminishing balance method, units of production method
• Factors to be taken into account when determining useful life [IPSAS 17.72]:
o Legal or similar limits
o Technical or commercial obsolescence
o Expected use of the asset (i.e. expected capacity or physical output)
o Expected physical deterioration through use or passing of time
In determining whether an item of PPE is impaired, an entity applies [IPSAS 17.79]:
• IPSAS 21 for non-cash generating assets
• IPSAS 26: for non-cash generating assets
Summarized accounting treatment of an impairment loss (excl CGU’s):
When an item of PPE is impaired (i.e. recoverable amount < carrying amount), the carrying amount is reduced to the amount of the recoverable amount [IPSAS 21.52 – 26.72].
This decrease of the carrying amount is an impairment and is recognized in surplus or deficit [IPSAS 21.54 – 26.73].
After recognition of an impairment loss, the depreciation charge of the asset shall be adjusted in future periods to allocate the asset’s revised carrying amount over its remaining useful life [IPSAS 21.54 – 26.75].
An item of PPE should be derecognized [IPSAS 17.82]:
• on disposal
• when no future economic benefits are expected from its use or disposal
Gain or loss is the difference between the payment received (discounted if payment is deferred) and the carrying amount (NBV) of the item [IPSAS 17.86].
Gains or losses are recognized in surplus or deficit [IPSAS 17.83] (except for sale and leaseback, refer to IPSAS 13).
Upon disposal of an item of property, plant and equipment valued under the “fair value model”, the possible revaluation surplus included in net assets/equity should be added directly to accumulated surpluses or deficits (as part of net assets/equity). Transfers to accumulated surpluses/deficits are not performed through surplus or deficit (Statement of Financial Performance) [IPSAS 17.57].
Heritage assets are assets of value because of its cultural, environmental, educational or historical significance for a nation or society (not as such defined in IPSAS)
An entity is not required to recognize heritage assets. If the recognition criteria for these assets are met and the entity elects to recognize these assets the entity may (not obligatory) apply the measurement criteria of IPSAS 17 and is required (obligatory) to the disclosure requirements of the standard [IPSAS 17.9].
Examples of heritage assets are:
- historical buildings
- archaeological sites
- conservation areas
- nature reserves
- works of art
For heritage assets recognized the disclosure requirements (cfr infra) of IPSAS 17 are applicable.
Required disclosures for each class of property, plant, and equipment [IPSAS 17.88]
• basis for measuring gross carrying amount
• depreciation method applied
• useful lives or depreciation rates
• gross carrying amount and accumulated depreciation and impairment losses at beginning and end of the period
• reconciliation of the carrying amount at the beginning and the end of the period, showing:
o acquisitions through entity combinations
o revaluation increases or decreases
o impairment losses
o reversals of impairment losses
o net exchange differences
o other changes
Further required disclosures [IPSAS 17.89]
• restrictions on title and PPE pledged as security
• expenditures recognized in the process of the construction of PPE
• contractual commitments for the acquisition of PPE
• compensation from third parties for items of PPE that were impaired, lost or given up included in surplus or deficit
For a class of PPE stated at revalued amounts [fair value model], following additional disclosures are required: [IPSAS 17.92]
• the effective date of the revaluation
• whether an independent valuer was involved
• the methods and significant assumptions used for the estimation of fair values
• the extent to which fair values were determined directly by reference to observable prices in an active market or recent market transactions on arm's length terms or were estimated using other valuation techniques
• revaluation surplus, indicating the change for the period and any restrictions on the distribution of the balance to shareholders or other equity holders
• the aggregate of all revaluation surpluses within that class
• the aggregate all revaluation deficits within that class
Issuance of IPSAS 17: Property, Plant, and Equipment
IPSAS 17 revised
1 January 2008
Effective date of IPSAS 17
1 January 2011
Effective date of Improvements to IPSASs (issued in January 2010)
1 January 2013
Effective date of Improvements to IPSASs 2011 (issued in October 2011)
1 January 2014
Amendments from IPSAS 32, Service Concession Arrangements (issued in October 2011)